These questions are just for those who wish to do more personal study and revision or to

expand their general knowledge. They do not have to be handed up and are not compulsory.

1 Finance in the Media.

Read the article and consider the questions below.

Facebook Shares Available for Buy and Sell Before IPO

By BHASKAR PRASAD, February 23, 2012 5:25 AM EST

Facebook, which has filed the prospectus for its initial public offering (IPO) seeking to raise $5
billion in initial funding, is yet to set its price range for the IPO but buying and selling of its
stocks are already happening.

According to U.S. Securities and Exchange Commission rules, it is possible for insiders and
investors with $1 million of net worth and a salary of more than $200,000 can qualify to buy
stock on private marketplaces. Also in an auction last week on SharesPost, Facebook stock
traded for $42, valuing the company at $98 billion.

For instance LinkedIn Corp, two months before the IPO, was valued at $35 a share in private
trading in March 2011. Its IPO priced in May was at $45, giving it a valuation of $4.25 billion.
Shares more than doubled to close at $94.25 on the first day of public trading.

It is expected that demand for the IPO will push the stock even higher when Facebook, which
reported in the filing $1 billion in profit on $3.7 billion in revenue last year, goes public.

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Facebook first turned a profit in 2009, when it earned $229 million on $777 million in sales,
according to the filing. At the end of 2011, Facebook had $3.9 billion in cash and marketable
securities, up from $1.8 billion at the end of 2010.

In its IPO filing, Facebook revealed that it now has 845 million users, nearly half the world's
Internet users.

In addition, the S-1 filing revealed how dominant founder and CEO Mark Zuckerberg's control of
the company is with Facebook's structure of two classes of stock ownership and a highly
unusual arrangement that gives Zuckerberg 57 percent of the voting power of Facebook stock.

The Facebook founder owns 533,801,850 shares of stock. Based on the company's last
determination that those shares were valued at $29.73, his stake in the company would be worth
more than $15.8 billion. He also has options to buy 120 million more shares.

Facebook has seen its user base grow phenomenally over time. Now it has to be seen how its
share prices are going to grow with the advent of IPO.

Source:http://www.ibtimes.com/articles/303333/20120223/facebook-shares-available-buy-sell-
before-ipo.htm
Questions

1) What is a security?
2) What is a stock?
3) What is an IPO and what does it mean for a company to go public?
4) What is a prospectus?
5) What is the difference between private and public trading of stock?
6) If I buy shares in Facebook at this IPO and then re-sell them in the stock market what
type of transaction is this? Will Facebook raise any additional financing from this sale?

You can use the following glossary to find some of the definitions:

http://www.investorwords.com/

2. Scenario analysis:

Assume you have saved $10 000 and want to buy a car that costs $18 000.
What is your financial position before and after the purchase of the car?

3. Textbook Questions

Chapter 2

2. Suppose your great uncle decides to take this months savings and purchase a bond issued
by the Gateway Computer Company to finance an increase in computer components in their
new factory. Describe how this exchange could occur directly or indirectly using the flow-of-
funds framework.

5. Suppose you invest in a real-estate development deal. The total investment is $100,000. You
invest $20,000 of your own money and borrow the other $80,000 from the bank. Who bears
the risk of this venture and why?